Member Article

On 25 May 2010, the Government issued a new List of Business Activities which are Closed and Business Activities which are Open for Investment with certain Requirements (the Negative List), which became effective as of the same date.

The new Negative List revokes and replaces the Negative List of 2007, and also introduces some new concepts. The Negative List now requires that changes to share ownership due to a merger, acquisition or consolidation must now observe the foreign capital requirement under the Negative List. In the case of a merger, the maximum foreign shareholding in the surviving company must comply with the foreign shareholding requirement stated in the surviving company's investment approval. In the case of an acquisition, the maximum foreign shareholding in the acquiring company must comply with the foreign shareholding requirement stated in the acquiring company's investment approval, while in case of a consolidation, the maximum foreign shareholding must comply with the foreign shareholding requirement stated in the investment approval for the new company formed in the consolidation process.

In addition, if a foreign shareholder acquires additional shares due to the inability of the local shareholders to purchase shares offered in a rights issue, and the foreign shareholder’s share ownership exceeds the limit under the Negative List, the foreign shareholder must relinquish its excess shareholding to local shareholders within two years. This can be done through a sale of the excess foreign share capital to local investors or the public by way of a public offering, or a re-purchase of the excess foreign owned shares as treasury stock.

Apart listing the activities which are totally closed for investment, the 2010 Negative List also provides the following restricted activities lists:
a. activities reserved for micro, small, and medium enterprises, and cooperatives;
b. activities to be conducted under a partnership arrangement;
c. activities with a restriction on foreign share ownership;
d. activities that can only be conducted in certain locations;
e. activities which require special approval;
f. activities open for 100% local shareholding;
g. activities with restrictions on foreign share ownership and which must be conducted in certain locations;
h. activities with restrictions on foreign share ownership and which require special approval;
i. activities open for 100% local shareholding and which require special approval; and
j. requirements for foreign share ownership or certain locations for investors from ASEAN countries.

The followings are some highlights of the requirements for activities in various sectors provided in the 2010 Negative List:
a.    Agricultural sector:

• Plantations with a total area of more than 25 Ha can have up to 95% foreign shareholding but require a recommendation from the Minister of Agriculture;
• Agricultural product processing industries can have up to a 95% foreign shareholding but require a recommendation from the Minister of Agriculture;
• Plantations with a total area of more than 25 Ha with integrated processing facilities can have up to a 95% foreign shareholding but require a recommendation from the Minister of Agriculture.

b.    Forestry sector:

• Ecotourism companies can have up to a 95% foreign shareholding;
• Sawmills, veneer , plywood , laminated veneers , wood chip and wood pellet industries require a recommendation for the continuous supply of raw materials from the Ministry of Forestry.

c.    Fishery sector:

• Marine salvage activities must comply with Presidential Decree No. 19 of 2007.

d.    Energy and Mineral Resources:

• Apart from small scale electric generation and radio-active mining, the activities under this sector are open for up to a 95% foreign shareholding (e.g. oil and gas drilling services, operation and maintenance of oil and gas facilities; operation and maintenance of electric power facilities; power transmission and distribution, EPC services).

e.    Industrial sector:

• Pulp industries must obtain their raw material from Industrial Forests or imported wood chips if supplies from domestic sources are not sufficient;
• Sugar industries can have up to a 95% foreign shareholding but must first develop a sugar cane plantation, and a sugar industry with a capacity of more than 8,000 tons of cane per day is required to produce raw sugar crystal.

f.    Public works sector:

• Drinking water businesses and toll road businesses can have up to a 95% foreign shareholding;
• Construction services (using high tech engineering or a contract value of more than IDR 1 billion) can have up to a 67% foreign shareholding;
• Construction consulting services can have up to a 55% foreign shareholding.

g.    Trading sector:

• Supermarkets with a sales area of less than 1,200 m2, minimarkets with a sales area of less than 400 m2, and department stores with a sales area of less than 2,000 m2 are only open to a 100% local shareholding;

h.    Culture and tourism sector:

• Catering services can have up to a 51% foreign shareholding but must comply with the regional regulations

i.    Transportation sector:

• Domestic and international shipping activities can have up to a 49% foreign shareholding;
• International shipping (excluding cabotage) can have up to a 60% foreign shareholding for investors from ASEAN countries;
• Port services and port support services can have up to a 49% foreign shareholding;

j.    Information and Communications sector:

• Telecommunications network businesses can have up to a 49% foreign shareholding;
• Mobile telecommunications network businesses can have up to a 65% foreign shareholding;
• Multimedia services have various foreign shareholding limits ranging from 49% to 95%;
• The provision, management, and construction of telecommunications towers is open only to local investors with a 100% local shareholding.

k.    Finance sector:

• Apart from pension fund businesses, activities in finance sector are open for a foreign shareholding of up to 80% (e.g. leasing, life insurance, re-insurance, venture capital).

l.    Education sector:

• Non-formal education business can have up to a 49% foreign shareholding;

m. Health sector:

• Pharmaceutical industries can have up to a 75% foreign shareholding;
• Hospital management services can have up to a 67% foreign shareholding;
• Distributors of pharmaceutical products require special approval from the Ministry of health;

n.    Security sector:

• All activities in this sector can have up to a 49% foreign shareholding but require an operating license from the national police (e.g. security consultancy services, supplying security personnel, escorting and transporting money/valuable goods).

The Negative List now allows foreign investment companies which already have an investment license to retain the foreign shareholding stated in the investment approval despite the lower foreign shareholding limit provided in the Negative List. Such companies do not need to divest or change their shareholding composition to conform to the new Negative List.

If you want to invest or establish a subsidiary in Indonesia, it is always advisable to first approach the BKPM (the Indonesian Investment Coordinating Board) to discuss the intended business activities so that the various requirements under the Negative List, as well internal BKPM policies, can be clarified.

* * *

 

Footnotes: